Rio Motels Trading Red Velvet for Single Bed Win Olympic Tax Cut

Feb. 14 (Bloomberg) -- Rio de Janeiro is granting tax
breaks to motels that convert from red velvet and ceiling
mirrors to single beds and conference tables as a means of
boosting lodging capacity in the city that will host the 2016
Olympics.

Incentives include a 40 percent property-tax reduction and
a services tax reduction through 2015 for motels that agree to
block off 90 percent of their rooms for the Olympics and make
them family-friendly, according to information provided by the
city’s investment promotion agency. The proposals were presented
to Rio’s chapter of the hotel association, ABIH-RJ, on Jan. 29.

“Motels are going to offer simple, pleasant installations
without the gaudiness of the past: red velvet, colored lights,
mirrors everywhere so people can see themselves from 10
different angles,” said Antonio Cerqueira, vice president of
motels at ABIH-RJ. “People are going to feel good.”

Motel operators, who typically charge for a room by the
hour, welcomed the proposals as they sense an opportunity to
lure new clientele and boost occupancy with tourists as well as
the businessmen building infrastructure and increasing offshore
oil development. Billionaire Eike Batista’s Gloria Palace Hotel
and other establishments in Rio also are renovating in
anticipation of visitors for the soccer World Cup in 2014 and
the Olympics two years later.

Rio has 20,400 hotel rooms, and another 10,000 divided
between motels, apartment hotels, hostels and bed & breakfasts,
and the total will grow to 47,800 by 2015, according to the
city’s investment promotion agency, Rio Negocios. The cost of
converting half the city’s 6,500 motel rooms will reach 200
million reais ($102 million), the agency said.

Olympic Cluster

Last month’s agreement “established that motels converting
into hotels would be entitled to the same tax benefits that
hotels have had since November 2010,” according to an e-mailed
statement from the office of Rio de Janeiro Mayor Eduardo Paes.

The greatest concentration of motels is in the Olympic
cluster of Rio’s port area near the Maracana Stadium, where the
World Cup finals will be played.

Villa Reggia is one such motel getting a makeover. With
ceiling mirror and hot tub removed from a penthouse, workers are
transforming it into two bedrooms and a conference room for
businessmen to meet and sign deals.

“Because of the new investments in the port, we’ve
received lots of requests from agencies for people to stay
here,” said Lourdes Will, Villa Reggia’s operational manager.
“Transforming these suites into rooms is unavoidable.”

Oil Boom, Gloria Palace

Exploration and production of Brazil’s pre-salt crude
reserves, the Western Hemisphere’s largest discoveries in more
than three decades, have also boosted investment in Rio’s hotels
while expanding motels’ corporate clients, Cerqueira said Jan.
21.

Cerqueira said Rio motels are privately owned and their
investors tap bank loans for projects.

Gloria Palace Hotel’s full-scale re-opening has been pushed
back. The hotel, which was the first to win five-star recognition,
will re-open partially in the first half of 2014 to host tourists
travelling for the World Cup, Batista’s real estate developer REX
said in an e-mailed statement.

REX in 2008 spent 80 million reais to acquire the hotel
that first opened 90 years ago, and as late as 2011 planned to be
fully operational at the end of this year.

“Rio is already presenting some major problems of demand
and supply,” said Nuno Constantino, head of tourism business
development for real estate consultancy CBRE Brasil. “You find
five-star hotels running above 80 percent to 90 percent annual
occupancy, so that’s already a problem.”

Prices Climbing

Hotel prices in the city rose 18.4 percent last year,
according to statistics from the Getulio Vargas Foundation in
Rio. Brazilian consumer prices as measured by the government’s
benchmark IPCA index climbed 5.84 percent in 2012.

Existing supply issues will be resolved in time for the
Olympics as new capacity comes online, Constantino said by phone
from Rio. Whether there will be sufficient rooms for the World
Cup is less certain, and the situation will probably be similar
to Carnival, he said.

While last year’s Carnival drew 850,000 visitors, 900,000
were expected in Rio for the pre-Lenten festival this year,
which would put the city’s lodging capacity at 98 percent,
according to statistics from the city and state governments.
Brazil’s Tourism Ministry forecasts 1.25 million tourists to Rio
during the month-long World Cup that will be held across Brazil.

Full Capacity

“Frankly, I don’t see any critical gap,” said Marcelo
Haddad, executive director of Rio Negocios. “During the World
Cup, it’s natural to think there will be if not full, absolutely
near-full capacity in the regular lodging systems.”

Some establishments that have refurbished have stopped
offering hourly rates. The agreement with the city doesn’t oblige
converted motels to do so. They can also revert back to motels
two years after the Olympic Games.

With rising hotel prices and high occupancy rates,
retrofitted motels will try to gain market share by stressing
attention to detail, said Andrew Jenner, fund manager of Astra
Hotel Investments that has raised 403 million reais to acquire
12 hotels in Brazil.

Motels “will be much more willing to give you better
breakfast, much more careful about giving you snow white towels,
a good shower,” Jenner said by phone from Rio, where Astra is
in talks to buy a hotel.